Canara Bank’s MD and CEO, K Satyanarayana Raju, states that the bank has provided guidance of 3.05 NIM for the entire fiscal year. The cumulative NIM for the prior year was 2.92. In the most recent quarter, we could demonstrate a NIM of 3.05. Although a higher interest rate obviously puts pressure on interest expenses, the fact that 52% of our portfolio is MCR-linked means that it is still providing favorable interest rates on advances. Even if the repo rate steadily declines, just 34% of our advances will be affected, thus we do not anticipate a drop in NIM below 3%. We are certain that we can operate at 3%.
This quarter, your cost of funds significantly increased. Where do you think the cost of money will reach its peak?
Since late October, the price of money has been rising. As of October 6, we began making payments at a higher rate of interest. We are currently experiencing high in interest costs. The only issue is that because of the high-interest rate environment that is still in place, whatever resources we mobilize in the form of term deposits may still earn the same rate of interest this quarter. Because of this, we want to benefit from any cushion we have in the shape of a lower CD ratio and feel motivated to exceed 75%.
Second, we are placing a greater emphasis on our CASA with cutting-edge items that we previously introduced on the first working day of the current recent June quarter and that have begun to show some results. Whatever new products we introduced, they helped our balance sheet by about Rs 3,300 crore over the past four months. We are continuing to concentrate on these initiatives, new ones aimed at the CASA, and bulk deposits that we could reprise when the interest rate soften was present from May 15 to June 30, and that is helping this quarter as well.
The market has been experiencing liquidity concerns since July of this quarter. Consequently, the high-interest rate will continue automatically. But we won’t be affected by it. We already feel as though we have accomplished everything. There may be a tiny bit here and there as it goes on.
NIMs have somewhat decreased this quarter. Where do you anticipate NIMs to ultimately settle in the future?
We initially provided a guidance of 3.05 NIM for the entire financial year for the current fiscal year. Accordingly, our cumulative NIM for the previous year was 2.92. In the most recent quarter, we could demonstrate a NIM of 3.05. Although a higher interest rate obviously puts pressure on interest expenses, the fact that 52% of our portfolio is MCR-linked means that it is still providing favorable interest rates on advances. Even if the repo rate steadily declines, just 34% of our advances will be affected, thus we do not anticipate a drop in NIM below 3%. We are certain that we can function at 3%.
Your rise in technological advancements has outpaced the advice you previously provided. Does this imply that you will now increase your FY24 guidance?
We provided projections for the current fiscal year during the first quarter, predicting that advancement growth would be 10.5%. However, I had anticipated that our credit growth may be in the 12–14% range when I was dealing with all of you. We can see more than 3% growth in domestic credit in only the first quarter. That proves that we can achieve our promises and achieve loan growth in the 12–14% area. We can guarantee that our credit growth will be more than 12%, between 12% and 14%. Our year-over-year growth for the first quarter was 13.27%.
Many PSU banks were present at the Finance Minister’s meetings. I want to know what was specifically discussed because it appears like there was some caution or a red flag raised about unsecured financing. Is there anything unique to Canara Bank?
I’m limited to talking about Canara Bank. I am not able to comment on unsecured advances for the other banks. Our unsecured advances are extremely, extremely scarce, particularly in the retail industry. The increase of unsecured retail loans is concerning. Industry-wide, it has increased from 23% to 25% odd. But in our bank, only customers who receive wage credits are tied to the retail unsecured loan portfolio. People without a steady source of income are not eligible for any unsecured loans from us. People without a steady source of income are not eligible for any unsecured loans from us. Additionally, we are not providing it to anyone outside of our current clientele.
Redefining our product was done. It has been rather adaptable. Before, we would distribute the cargo according to departments. Now that all 1,100 items have been combined, we have two products—the Canara Budget for government employees and the private sector employees—that are comprehensive bundles. Many people are interested in this scheme. At the same time, we are aggressively persuading the salaried class to choose Canara Bank as their bank for disbursing salaries.
This product has gained popularity among them, but our exposure to unsecured loans will only apply to the salaried class who receive their paychecks from our bank. Although there has been good growth in this, I do not perceive any threats or anything else. Our base volume is really little; it is only around Rs 7,000 crore.
In this quarter, bring up corporate loans once more. According to HDFC Bank’s comments, there may be some mispricing of the loans.
There is no compromising on business pricing from Canara Bank’s perspective. We are very certain that, as one of the top four big banks, we contribute significantly to the success of the corporate world. Because of this, every corporate entity wants to work with us, but we are quite worried about our pricing. To demonstrate top-line growth, we are not making that kind of compromise.
We expanded last year and currently have more than Rs 40,000 crore in outstanding liquidity in our system. This is the perfect amount of liquidity for the short-term investments we made in the first quarter of last year. But starting with the last quarter, we began repricing all of those items.
We are unbothered. Actually, we have one or two AAA-rated businesses. Because we are not lending unless we receive our desired pricing, we have taken back any exposures that have reached maturity and have not renewed those accounts. This is done to increase top line business at the expense of bottom line.
However, there is a big need for credit. Nearly Rs 12,000–15,000 crore worth of proposals and fresh sanctions are made in our bank on a monthly basis. We imposed fines totaling about Rs 55,000 crore over the previous four months. There is so a lot of room. We choose those that are appropriate for our balance sheet while keeping in mind both the price and the company’s grade or credit rating.
Has the effect of the ECL installation been evaluated?
An estimation was produced the last time we shared with the analysts. After that, we repeatedly asked the regulator for clarity, and we recalculated our needs in light of their answers. The average amount of additional coverage we now need that might only have that small of an impact is 2.25%.
Before implementing the final draft standards, we have searched the market for a consultant to provide additional direction. We’ll be careful to further hone this ECL’s impact. It can be close to 2%.
Your desired return on asset, which was roughly 1%, has already been met. Next, what?
We provided a 1% guidance. Initially, we provided a projection of 1% return on assets (ROA) for the current financial year. With all of our ideas and efforts, we were able to accomplish 0.99% in just the first quarter. We can easily attain that 1% ROA, of that much we are certain. However, this is really the very minimum of what we have told you. Our success will surpass that.